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A record number of multiemployer pension plans are receiving financial assistance
from the federal government this year as the burgeoning ranks of retirees dwarf the
number of employees paying into the plans.

Multiemployer pension plans--which are plans in unionized industries where employers
group together and contribute to a single plan on their workers’ behalf--have become
the biggest drain on the Pension Benefit Guaranty Corporation, the federal agency
that insures pension plans. The agency has said that its multiemployer program could
be insolvent as early as 2025.

Even as Congress has taken steps to solve the multiemployer pension problem, the plans
continue to face a death spiral. In fiscal year 2016, 10 multiemployer plans went
insolvent and requested financial assistance from the PBGC. The federal agency is
now giving financial assistance to a record-high 71 multiemployer plans.

About $112 million of financial assistance went to troubled multiemployer plans in
FY 2016, the highest amount in history, according to data Bloomberg BNA obtained from
the PBGC.

Draining Pool: Paying Out Without Enough Coming In

These 10 plans became increasingly dominated by retired and separated vested participants
from plan year 2001 to 2015, Bloomberg BNA found after an analysis of
Employee Benefits Security Administration Form 5500 raw dataset. As the number of active employees in each plan dwindled, the amount of money contributing
employers made to the plans shrunk, ultimately leading to their insolvency.

Seven of the 10 plans had no active participants since 2013, although five of the
seven had more than 20 percent active participants in plan year 2001. NMU Great Lakes
had no active members throughout the 15 years reviewed by Bloomberg BNA.

In 2014, 94 percent of Cement Masons Local Union 681 Pension Fund participants were
retired or separated vested, lower than most of the 10 insolvent plans. Cory Crandall,
the Cement Masons plan’s administrator, told Bloomberg BNA, “when you have a ratio
like that, it’s nearly impossible to keep up.”

After some employers left the Cement Masons plan, the local unions didn’t have enough
employers contributing. “The plan was paying out benefits without enough contribution,”
Crandall said.

The other nine plans that went insolvent in 2016 didn’t respond to Bloomberg BNA’s
request for comments.

Bigger Problem: Declining Unions and Industries

Shrinking industries and unionization are the deeper causes behind the cashflow problem
these plans had that led to their insolvency, Jean-Pierre Aubry with Boston College
Center for Retirement Research told Bloomberg BNA.

Aubry,
in a 2014 study, predicted that three of the 10 plans would go insolvent in 15 years, based on projected
assets and liabilities.

If the plan is in a declining industry, there’s no new employer that comes in to replace
an employer that leaves the plan. When this happens, the plan should be fine if the
employer pays its withdrawal liability, Aubry said. But usually the exiting employer
either goes bankrupt and doesn’t pay at all, or it just pays part of it. To cover
the gap, every other employer that’s still in the plan would need to pay more, “but
no employer does that,” Aubry said.

The shrinking of unions means fewer employers and fewer active participants are making
contributions, while the plan still has the same pile of retirees it has to pay, Aubry
said.

A decreasing ratio of active participants to retirees isn’t unique to just these 10
plans that went insolvent. The ratio of retirees and separated vested participants
in all multiemployer plans has increased significantly from 1995 to 2013, according
to a 2014 databook that Bloomberg BNA acquired from the PBGC. The ratio of retired
and separated vested combined increased from 48 percent to 63 percent during this
time frame. Accordingly, the number of insolvent multiemployer plans jumped from nine
in 1995 to 58 in 2015, according to the PBGC databook.

Congress attempted to prolong the viability of the multiemployer pension program when
it passed the Multiemployer Pension Reform Act of 2014 (MPRA).

The MPRA allows the “critical-and-declining” subset of red-zone plans to apply to
the Treasury Department for benefit cuts. A plan projected to go insolvent in 20 years
is also critical and declining if its ratio of inactive to active participants is
more than 2 to 1, or if the plan is less than 80 percent funded. Plans are required
to report its risk status in Form 5500, send notices to its members and submit its
notices to the Department of Labor, when it becomes a critical-and-declining plan.

There are 102 critical-and-declining plans according to the most recent data available,
Aubry told Bloomberg BNA on May 3. That means these plans will do what they say: go
insolvent in 15 or 20 years, if there’s no policy change, Aubry said.

Is the MPRA helping prolong plans’ solvency by allowing them to cut benefits? Not
yet, Aubry said.
Only one out of the 12 plans that applied has been able to go through with the cuts, excluding the five withdrawn applications.

In practice, at least for the plans that have applied, MPRA hasn’t been a solution,
Aubry said.

To contact the reporter on this story: Jasmine Ye Han in Washington at
yhan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at
jmeyer@bna.com

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